In general, corporations organized under, or subject to, Chapters 156, 156A, 156B, 156C, 156D or 180 of Massachusetts General Laws (M.G.L.) or that have privileges, powers, rights or immunities not possessed by individuals or partnerships are subject to the corporate excise. Most corporations have an income tax component of their excise. For those corporations, their income is taxed at a rate of between 8% and 9%. Dividends distributed to Massachusetts residents are also subject to the personal income tax rate of 5%.
Certain corporations with no more than 100 shareholders may elect to be taxed, for both federal and state tax purposes, as "S corporations." Under federal law, most S corporation income is passed through and taxed only as personal income to shareholders, and is not taxable at the entity level. Only limited categories of income are subject to an entity-level tax federally.
For Massachusetts purposes generally, S corporation income is not subject to an entity-level tax, except as follows: 1) those limited categories of income that are subject to an entity-level tax federally are also taxable in Massachusetts at the full corporate rate; and 2) the income of an S corporation with receipts of $6 million or more is subject to tax at reduced corporate rates.
As of 2020, S corporations with total receipts of at least $6 million but less than $9 million are subject to a corporate excise of 2.00% of net income for non-financial institutions and 2.67% for financial institutions. An S corporation with total receipts of $9 million or more is subject to an excise of 3.00% of net income for non-financial institutions and 4.00% for financial institutions.
The difference between the manner in which income is taxed to an ordinary business corporation (including its shareholders) and an S corporation and its shareholders constitutes a tax expenditure. Massachusetts first adopted this treatment of S corporations in 1986.
Origin: IRC, §§ 1361-1363; M.G.L. c. 62, § 17A; M.G.L. c. 63, §32D
Corporate Excise Tax
Exclusions from Gross Income
2.001
Small Business Corporations
In general, corporations organized under, or subject to, Chapters<a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156" target="_blank"> 156</a>, <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156a" target="_blank">156A</a>, <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156b" target="_blank">156B</a>, <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156c" target="_blank">156C</a>, <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156d" target="_blank">156D</a> or <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter180" target="_blank">180</a> of Massachusetts General Laws (M.G.L.) or that have privileges, powers, rights or immunities not possessed by individuals or partnerships are subject to the corporate excise. Most corporations have an income tax component of their excise. For those corporations, their income is taxed at a rate of between 8% and 9%. Dividends distributed to Massachusetts residents are also subject to the personal income tax rate of 5%. <BR><BR>Certain corporations with no more than 100 shareholders may elect to be taxed, for both federal and state tax purposes, as "S corporations." Under federal law, most S corporation income is passed through and taxed only as personal income to shareholders, and is not taxable at the entity level. Only limited categories of income are subject to an entity-level tax federally.<BR><BR>For Massachusetts purposes generally, S corporation income is not subject to an entity-level tax, except as follows: 1) those limited categories of income that are subject to an entity-level tax federally are also taxable in Massachusetts at the full corporate rate; and 2) the income of an S corporation with receipts of $6 million or more is subject to tax at reduced corporate rates. <BR><BR>As of 2020, S corporations with total receipts of at least $6 million but less than $9 million are subject to a corporate excise of 2.00% of net income for non-financial institutions and 2.67% for financial institutions. An S corporation with total receipts of $9 million or more is subject to an excise of 3.00% of net income for non-financial institutions and 4.00% for financial institutions. <BR><BR>The difference between the manner in which income is taxed to an ordinary business corporation (including its shareholders) and an S corporation and its shareholders constitutes a tax expenditure. Massachusetts first adopted this treatment of S corporations in 1986.
<a href="http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00001361----000-.html" target="_blank">IRC, §§ 1361-1363</a>; M.G.L. <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section17a" target="_blank">c. 62, § 17A</a>; M.G.L. <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section32d" target="_blank">c. 63, §32D</a>
134.7
149.4
152.6
156.6
161.3
